Airbnb’s Surprising Path to Y Combinator

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Airbnb’s Surprising Path to Y Combinator

Airbnb founders Nathan Blecharczyk, Joe Gebbia, Brian Chesky in 2016.

Charley Gallay

In 2008, Brian Chesky and Joe Gebbia had run out of money; they were going into debt; and Airbnb had notraffic.NateBlecharczyk had followed his now-wife to Boston. The founders were nearly out of options. Out of sheer desperation, Chesky and Gebbia resurrected an idea that had come to them before the Democratic National Convention: shipping Airbnb hosts free boxes of cereal—Obama O’s and Cap’n McCain’s—that they could then serve to guests. By this point, Chesky and Gebbia had racked up $20,000 in credit card debt each. Blecharzyk thought the idea was crazy; he said he wanted nothing to do with it, and that they’d best not spend any money on it. Here’s what happened next.*Chesky and Gebbia retreated into a mode they were familiar with — the creative hustle — and found a RISD alum in Berkeley who had a printing shop. He wasn’t willing to make one hundred thousand boxes, but he said he’d print them five hundred boxes of each for free if they’d give him a cut of the sales. That smaller scale would crush their economic model, but they decided to recast the idea as “limited edition” boxes; they’d number the boxes, pitch them as collectors’ editions, and charge forty dollars per box.

They scoured San Francisco’s supermarkets to find which sold the cheapest cereal and filled up shopping cart after shopping cart un­til they had a thousand boxes of one-dollar cereal, loaded them into Gebbia’s red Jeep Cherokee, and hauled them home. Back in the kitchen, with a thousand flat boxes and a hot-glue gun, they got to work, hand-folding the boxes and sealing them shut with the glue. “It was like doing giant origami on my kitchen table,” Chesky would later recall during an on-stage interview with Pando Daily’s Sarah Lacy. He burned his hands. He thought to himself that he couldn’t remember Mark Zuckerberg hot-gluing anything or burn­ing his hands assembling cereal boxes to launch Facebook. Maybe, he thought, this wasn’t a good sign.

But they finished the boxes, and, in their last-ditch attempt at stir­ring up attention for their failing company, alerted the press. Tech reporters got bombarded with pitches, they reasoned, but they prob­ably didn’t get cereal shipped to their desks all that often. Maybe they’d respond; and if they displayed the boxes on their desks or on bookcases in the newsroom, all the other reporters would also see it. The gimmick worked: The press ate it up, and the boxes started moving. Obama O’s sold out in three days, after which people started reselling them on eBay and Craigslist for as much as $350 per box. (Cap’n McCain’s never sold out.)

The founders paid off their debt, but they still had no traffic on their original idea, which had nothing to do with cereal, and they had no sense of how to develop more traffic. It was a grim time. (Dur­ing one phone conversation, Deb Chesky asked her son, “So wait — are you a cereal company now?” Even worse than the question was that Chesky didn’t quite know how to answer it.) They had made less than $5,000 from AirBed & Breakfast, and somewhere between $20,000 and $30,000 selling cereal. Blecharczyk, deeply skeptical of the ce­real plan from the start, decided enough was enough. Back in Boston, he started consulting again and got engaged.

In effect, Chesky and Gebbia were back at square one, in their apartment with no money. Chesky had lost twenty pounds over the course of the year. Out of money and out of food, for the next few months they lived off of dry Cap’n McCain’s; even milk was too ex­pensive. (And yet even during these difficult times, Chesky was still strategizing. At one point Deb Chesky remembers urging her son to go buy some milk. “No, we’re just going to struggle through,” she says he told him. “It’ll be a better story someday.”)

One night in November 2008, Chesky and Gebbia were having dinner with Michael Seibel, then the CEO of Justin.tv, who’d been acting as their sole advisor since they first connected with him at South by Southwest months earlier. Seibel suggested that they consider applying to Y Combinator. Chesky immediately took umbrage at the idea. Y Combina­tor was for prelaunch companies, he protested. AirBed & Breakfast had already launched — they had customers! They had been written up on TechCrunch! But Seibel delivered the truth that, deep down, they all knew: “Look at you,” he said. “You guys are dying. Do Y Combinator.” The application deadline had passed, but Seibel sent a message to Y Combinator founder Paul Graham, who said he’d consider them if they got their application in by midnight. Chesky and Gebbia called Blecharczyk in Boston, waking him up at 1 a.m. to ask if they could put his name on the application with them. He hardly remembers agreeing, but he did.

They applied, got an interview, and somehow convinced Blechar­czyk to come back to San Francisco for it. Y Combinator’s applica­tion process is famously brutal; interviews are just ten minutes flat, consisting of Graham and his partners asking rapid-fire questions; no presentations are allowed. After several hours of prepping and mock-interviewing one another, the founders were ready to leave for the interview. On the way out, Gebbia went to grab a box of Obama O’s and Cap’n McCain’s to put them in his bag, but Chesky and Blecharczyk stopped him. “Are you out of your mind?” Blecharczyk asked him. “Leave the cereal at home.” (Says Gebbia, “I felt very out­numbered in that moment.”) They piled into Gebbia’s Jeep and drove down to Mountain View, where Y Combinator’s headquarters were located.

The interview didn’t go well. After the founders explained the idea, Graham’s first question was, “People are actually doing this? Why? What’s wrong with them?” Chesky felt Graham was impressed that they knew so much about their market and customers, but it seemed like he dismissed the idea itself entirely. (Graham and others often point out that at this time the idea for the company was still that the person renting out the space would be present; the founders hadn’t yet conceived of their users renting out their entire home or apart­ment.) As they started to pack up to leave, Gebbia pulled out the ce­real boxes; against Blecharczyk’s wishes, he’d sneaked them into his bag. He walked over to Graham, who was by then talking with his partners, and handed him one. Graham thanked him, awkwardly — he thought they had bought some cereal for him as a weird or bizarre gift. The founders told him, no, they had made and sold the cereal boxes — it was, in fact, how they’d funded the company. They told him the story behind the Obama O’s. Graham sat back and listened, newly intrigued. “Wow,” he mused. “You guys are like cockroaches. You just won’t die.”

The founders were told to expect a call from Graham very shortly if they were accepted. But the rules were strict: If they got an offer, they needed to accept on the spot; otherwise Graham would simply go down the list and offer the slot to the next person. In the Jeep on the way back to San Francisco, Chesky saw Graham’s number pop up on his cell phone. He picked it up, with Gebbia and Blecharczyk eagerly listening in. But just as Graham started to say, “I’d love to . . . ,” the call dropped. They were on a stretch of I-280 between Silicon Valley and San Francisco where it was well known that there was no cell signal. “I’m, like, NOOOO!” Chesky later recalled. “Me and Joe are freaking out, and Joe is, like, ‘Go, go, go!’” They weaved frantically through traffic to try to get a signal. “I’m, like, ‘Oh my God, I just ruined it,’” says Chesky.

It wasn’t until they were back in San Francisco that Graham called again and got through — and offered them the spot. Chesky feigned that he had to “check” with his cofounders, put him on mute to ask if they would accept — they were, of course, totally out of options — and told Graham they were in. Graham would later tell Chesky it was the cereal that clinched it. “If you can convince people to pay forty dollars for a four-dollar box of cereal, you can probably convince people to sleep in other people’s airbeds,” he said. “Maybe you can do it.”

The founders would get the $20,000 in seed funding that came with admission, in return for a six percent stake in the company, and they would enroll in the next three-month term, which would begin in January. They were due to report for a welcome dinner on Tuesday, January 6, 2009. After what Chesky would later refer to as an “in­tervention,” Blecharczyk finally agreed to relocate to San Francisco for three months and moved back into the Rausch Street apartment. The band was back together. They had been given another chance.